Understanding Closing Costs

When you request a list of closing cost from your loan officer you will see multiple items listed, many with unfamiliar terms used to describe the service. Here are some closing costs you will encounter along with a brief explanation of each fee.  Your Mortgage Banker can also explain the charges line item by line item.

Appraisal

Lenders will take your sales contract and order a property appraisal. An appraisal is performed by an independent third party who will compare the sales price of your potential home with other similar homes in the area and make certain adjustments for factors such as age, upgrades,and lot size. Typically, the appraisal value will reflect the sales price or greater.  Lenders will always use the lower of the sales price or appraised value.

Credit Report

There are three main credit repositories, Experian, Equifax and TransUnion and your lender will order a credit report from all three. Lenders refer to this as a “tri-merged” residential credit report with each bureau providing its own credit report to the lender.

Title Insurance

Title insurance is an insurance policy that  protects the lender and buyer against any previous claims against the property and protects against any prior fraud.

Origination Fee

A lender can charge a loan origination fee and it is generally expressed as a percentage of the amount borrowed. A 1.0% origination fee is a common bis applied to offset some of the lender’s initial costs associated with originating and approving the loan.

Recording

This charge goes toward the fees necessary to record your transaction with the local county showing the property was transferred from the seller to you.

Funding Fee

The funding fee is a charge used to fund the loan guaranty. This fee can vary based upon the term of the loan or if the loan was used for a first time purchase but regardless it does not have to be paid out of pocket and is rolled into your loan amount.